Net stocks return to trend

Doomed-to-fail mentality sours post-Election Day trading

By

BambiFrancisco

NEW YORK (CBS.MW) -- After advancing in the past few sessions, Internet stocks sold off Wednesday with e-tailing names leading the slide as investors opted to bail out before more bankruptcies surfaced.

"Investors are no longer interested in things that are doomed to fail," said James Glickenhaus at Manhattan-based Glickenhaus & Co., referring specifically to the beleaguered e-tailing sector.

"Once we got through tax-loss-selling season, typically there's a rally and we saw that last week," said Bob Walberg, chief equity analyst at Briefing.com. "Now, we're seeing a return to trend -- which is down."

At the same time, the presidential election remained too close to call.

"The uncertainty in the elections is coincidental," said Glickenhaus. "Investors have been burned and this Internet magic-market ride has, at best, hit a wall, at worst continues to slide."

"Irrespective of what's happening politically, technology stocks are going about their business," said Michael Holland of Holland & Co.

Indeed, whoever resides in the White House, there is likely to be gridlock in Washington, which is good for the market. The Republicans will maintain control in the House of Representatives and the U.S. Senate, but with narrower margins. Gridlock, theoretically, means the government will be snarled in partisan wrangling and unable to push through policies that could interfere with business. See MarketWatch election updates.

The numbers

"Whatever the outcome in Washington, it won't stop the ubiquitous nervousness in the Nasdaq," said Holland.

The Nasdaq Composite fell 5.4 percent, or 184 points, to 3,231.70. See Snapshot.

The Goldman Sachs Internet Index gave up 6 percent, after adding 2 percent on Election Day Tuesday, its fifth advance in the past six sessions.

The Amex Internet Index declined by 5.4 percent, after inching up on Election Day while Merrill Lynch Internet Holdrs gave up 5 percent, giving back all of Tuesday's 3.6 percent gain. Merrill Lynch Internet B2B Holdrs, a barometer of business-to-business Net stocks, lost 8 percent.

Merrill Lynch analyst Henry Blodget also reduced his rating on Etoys
IPET
Buy.com
BUYX
and Webvan
WBVN
following Pets.com's, Furniture.com's and MotherNature.com's announcement Tuesday to wind down operations. See full story.

Merrill Lynch was the lead banker behind the Pets.com IPO, just eight months ago. Merrill was also the lead manager on the Buy.com IPO and co-managed the Etoys and Webvan IPOs.

According to Greg Kyle of Pegasus Research, 37 out of the 40-plus e-tailing stocks he tracks trade below $5. Kyle is the analyst who's behind the cash-burn rate analysis that arguably ignited the panic-selling back in April.

And the king-of-the-hill e-tailer Amazon.com
AMZN, -0.13%
which owns about 30 percent of Pets.com, posted losses, as well. Shares fell 5 percent to $35.19. Amazon will not see a financial impact, said Faye Landis, an analyst at Sanford Bernstein. Investors have not been putting much weight on Amazon's investments in Pets.com, Living.com (which filed for bankruptcy), Gear, and Drugstore.com, she added.

Yahoo
YHOO
shares fell 4.7 percent to $66.31. While the political cliffhanger may be keeping trading on hold, it is a boon for Web sites. Yahoo said that traffic to its news site tripled its previous record.

Shares of Art Technology Group
ARTG
tumbled 18 percent to $45.13. The darling in the customer relationship management software space disclosed in its just released 10-Q filing that it sold $9.6 million in accounts receivables. "It is clear the September quarter was not as strong as previously thought," said Stephen Sigmond, an analyst at Dain Rauscher Wessels.

Of note...

Ask Jeeves
ASKJ
dropped 11 percent to $15.63 after solid wins in the past two sessions as the company steps up its effort to brand itself as a customer relationship management software company. Watch video report on Ask Jeeves.

Digital Island
ISLD
lost 81 cents to $11.81. After the bell, the provider of content distribution technology announced fourth-quarter results after the close of trading. Quarterly revenue grew 50 percent to $24.1 million.

24/7
TFSM
gave up 12 percent to $4.94. After the close, the advertising technology company said it generated $48.1 million in revenue in its third quarter, up 98 percent from the same period a year ago.

Internet Capital Group
ICGE
which owns a network of Internet business-to-business companies, lost $1.63, or 9 percent, to $16.69. The company announced that the aggregate reported revenues of all of ICG's partner companies grew to $594.7 million in the third quarter, up 630 percent in the same period a year ago. The company also reported a loss of $263.9 million.

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